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Speaker 3: And the Savannas. This morning, the FED Chair stay and put.
Speaker 4: If my successor is not confirmed by the end of
Speaker 4: my term as chair, I would serve as chair pro
Speaker 4: tem until he is confirmed. I have no intention of
Speaker 4: leaving the board until the investigation is well and truly over,
Speaker 4: with transparency and finality. On the question of whether I
Speaker 4: will then continue to serve as a governor after my
Speaker 4: term ends and after the investigation or I have not
Speaker 4: made that decision yet.
Speaker 3: So here's the latest.
Speaker 2: This morning, the FED Chair Jay Powell, vowing to stay
Speaker 2: on at the Central Bank until the DOJ investigation into
Speaker 2: him comes to an end. Joining us now to Viscasis
Speaker 2: Kristna of Evercorn now Christa welcome. First of all, we've
Speaker 2: asked this question a number of times in the last
Speaker 2: twenty four hours. I'd love your perspective on it. Does
Speaker 2: that provide consistency or invite controversy?
Speaker 5: I think Powell has made explicit something that I think
Speaker 5: was very clear to anyone who knew him. There is
Speaker 5: simply no way that he would even consider leaving the
Speaker 5: FED under the cloud of this investigation, not really because
Speaker 5: of what it means for him, but because of the
Speaker 5: precedent that it would create that a future FED official,
Speaker 5: even FED chair, could be, on the face of it,
Speaker 5: driven out or at least helped to the door by
Speaker 5: a DOJ investigation.
Speaker 2: This line here, though, I think, is this interesting. The
Speaker 2: first line from the chairman was that if my successor
Speaker 2: is not confirmed by the end of my term as chair,
Speaker 2: I'll stay on. That makes sense, that's continuity. Market wants
Speaker 2: to see that. The second line was I have no
Speaker 2: intention of leaving the board until the investigation is well
Speaker 2: and truly over with transparency and finality. So ultimately a
Speaker 2: lot of people will view that as defending central bank independence. Granted,
Speaker 2: the third point is interesting though, and this is the
Speaker 2: bit where I'm intrigued.
Speaker 3: Krishner this line. At the moment on the.
Speaker 2: Question of whether I will continue to serve as a
Speaker 2: governor after my term ends and after the investigation is over,
Speaker 2: I have not made the decision on that yet. What's
Speaker 2: the value of putting that out there?
Speaker 5: Well, I think you're absolutely right that that was a
Speaker 5: very strong statement by Powell. And as you'll recall, it
Speaker 5: wasn't something he was forced to say because of questioning.
Speaker 5: It's something he volunteered. He had it written down, he
Speaker 5: knew he wanted to say that. Look, there's a sort
Speaker 5: of narrow sense in which we can interpret that in
Speaker 5: a why sense. The narrow sense is that Powell doesn't
Speaker 5: want to look like he's offering a deal. If you
Speaker 5: drop the investigation, I walk right, that's almost as bad
Speaker 5: as looking like you're being hounded out by the investigation itself.
Speaker 5: So there's a narrow way in which we might interpret
Speaker 5: that language. But I'm inclined to read it also in
Speaker 5: a broader way. The Powell is telling us that he
Speaker 5: is seriously considering staying on as a governor, as a
Speaker 5: regular governor, at least for some time after the end
Speaker 5: of his term as chair, even if that investigation is dropped.
Speaker 5: That is not something I would have really brought into
Speaker 5: a few months ago. But I think the DOJ investigation
Speaker 5: has backfired terribly on the administration, and I think that
Speaker 5: it feels like Powell is inclined to stay possibly either
Speaker 5: way at this juncture.
Speaker 1: I'm struck by the historical parallel, and we were talking
Speaker 1: about this yesterday. The last person who is FED chair
Speaker 1: who then stayed on as governor was Baroner Eccles. His
Speaker 1: term ended as FED chair in nineteen forty eight, and
Speaker 1: he stayed on for a number of years after that.
Speaker 1: This is following the Breton Woods Accord, It followed the war,
Speaker 1: It followed a highly tumultuous period in central banking history.
Speaker 1: Are we marking another period which is sort of setting
Speaker 1: off a new era for central banks where they have
Speaker 1: less power or frankly, they don't necessarily drive the bus,
Speaker 1: where Generation Q, as Michael Hartner just said, is over.
Speaker 5: Well, certainly, you know the note we published on the
Speaker 5: FED meeting yesterday said specifically what you've just mentioned that, Look,
Speaker 5: this was actually in the circumstance is a pretty dubvish
Speaker 5: FED meeting, and it came with bullish upgrades to growth forecast.
Speaker 5: But we wrote the FED is not driving the bus. Now,
Speaker 5: that's in the specific context of a war, and a
Speaker 5: war that generates a very large shock to energy prices.
Speaker 5: I'd be wary of making a generalized statement with central
Speaker 5: banks don't matter anymore. I think that would be and
Speaker 5: I'm not saying you're say that, but that would be
Speaker 5: far too sweeping. But certainly in the here and now,
Speaker 5: this is a context where the central banks are to
Speaker 5: a very large degree in reactive mode. They are not
Speaker 5: setting the agenda, They are not shaping where we are going.
Speaker 5: Does it feel to Powell potentially like this is a
Speaker 5: complex moment, both in terms of the world and in
Speaker 5: terms of the Fed's institutional situation, where it may be
Speaker 5: advisable for him to stay for a while. I guess
Speaker 5: that's certainly something that you know he will be considering here.
Speaker 5: One question I think is whether it would be a
Speaker 5: disaster for Chair Wash if Powell stayed on. Not clear
Speaker 5: to me that's the case. I'm not sure they're particularly close,
Speaker 5: to say the least, But Powell is underlying pretty dubvish
Speaker 5: and there are versions of the world where Powell staying
Speaker 5: on as a regular governor could ultimately help bridge to
Speaker 5: getting one or two cuts done later this year.
Speaker 1: Underwash, just real quick, here as the bar right now
Speaker 1: for the FED to hike rate at.
Speaker 5: Some point, Well, the term some point obviously is elastic, right,
Speaker 5: But I think the bar to the FED hiking rates,
Speaker 5: let's say this year, I think is incredibly high. It's
Speaker 5: not literally impossibly high, but I think it's very, very high.
Speaker 5: You know, look, we have an economy that faces growth
Speaker 5: as well as inflation risks, but one where you know,
Speaker 5: in the baseline case, both growth and core inflation in
Speaker 5: the US ought to be relatively relatively resilient, as in
Speaker 5: limited effect compared with the other economies in the rest
Speaker 5: of the world. So it's not obvious that this juncture
Speaker 5: a major shift in the direction of policy is appropriate.
Speaker 5: The market obviously has been pushing back and shaving FED
Speaker 5: rate cuts. That seems like the vector that is in
Speaker 5: play at the moment. I tell you, we still think
Speaker 5: that it's possible to get to a couple of cuts
Speaker 5: this year, under Chair War. So our take is more
Speaker 5: dubvish than the market right now would think that all
Speaker 5: fared signals yesterday, they're still inclined to cuts the one
Speaker 5: rather than two. And the question is could the data
Speaker 5: plus the new chair potentially certainly lock in that one
Speaker 5: and maybe get them to two.
Speaker 3: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. So here's the
Speaker 2: lisis this morning energy price is soaring as President Trump
Speaker 2: looks the curb attacks on infrastructure in the Middle East,
Speaker 2: claiming the US knew nothing. These ready strike on the
Speaker 2: critical South Pass gas field in Iran. This is what
Speaker 2: Edward Fishman of the Council on Foreign Relations has to
Speaker 2: say rise the following Iran his waging war on the
Speaker 2: global economy. Its strategy is clear, keep the stratiformers effectively
Speaker 2: closed until prices rise enough to force President Trump to
Speaker 2: back down. The author of choke Points American Power in
Speaker 2: the Age of Economic Wolfat joins us now for more
Speaker 2: Atie good Monk.
Speaker 6: Good to see John.
Speaker 2: That's sounds some books. Let's talk about the significance of
Speaker 2: this chuck point. He's got control of this Iran.
Speaker 7: I think that's the one thing we've learned is that
Speaker 7: Iran has established very clear control over the straight off
Speaker 7: hor moves and there's very little that the United States
Speaker 7: can do without committing ground forces to stop that. Trump
Speaker 7: entered the war assuming that Iran would not close the strait.
Speaker 6: Because the theory.
Speaker 7: Was that they would have to put thousands of sea
Speaker 7: mines in the strait to close it. And if they
Speaker 7: did that, what would happen? Iran would not be able
Speaker 7: to sell its own oil, so it would be economically suicidal. Well,
Speaker 7: Iran has kind of created a new kind of economic
Speaker 7: warfare with just using cheap drones that cost you ten
Speaker 7: thousand dollars a pop and only hitting about a dozen ships.
Speaker 6: Right, they haven't hit that many ships.
Speaker 7: They've changed the risk calculus of the entire entire shipping industry,
Speaker 7: and so they've really created this very low cost way
Speaker 7: of disrupting shipping and we don't have a great answer
Speaker 7: for it.
Speaker 8: I'm glad you brought up the costs because these are
Speaker 8: howdie drones are ten to twenty thousand dollars to produce.
Speaker 8: How many is Iran right now have in stock. Because
Speaker 8: how cheap they are to produce, means they could potentially
Speaker 8: prolong this war for as long as possible.
Speaker 7: I think that they could prolong as war as long
Speaker 7: as they want. If it's if we're talking about producing
Speaker 7: and using low cost drones, they've got tens of thousands
Speaker 7: of them. But I think more to the point, the
Speaker 7: room we're sitting in right now is bigger than you
Speaker 7: would need to actually produce to headrones.
Speaker 6: And Iran is a huge country.
Speaker 7: I think it's the fifteenth or sixteenth largest country in
Speaker 7: the world. So even in a scenario in which we've
Speaker 7: got air strikes for the next year and destroy every
Speaker 7: single thing in the country that looks like a military target,
Speaker 7: we're not going to be able to stop them from
Speaker 7: producing drones.
Speaker 8: Members of Iran's parliament right now are debating potentially making
Speaker 8: it basically like we have on our transit system, you
Speaker 8: have to pay a fee in order to get through
Speaker 8: the Strait of Hermose. So basically, is the United States
Speaker 8: at some point seating all control of this international waterway
Speaker 8: to the regime?
Speaker 7: Yeah, I mean, look, one of the core factors underlying
Speaker 7: American hegemony for decades has been that the United States
Speaker 7: provides open sea lanes. What Iran has shown now is
Speaker 7: that they actually control the Strait of Horn Moves. And
Speaker 7: even if this war were to end without regime change.
Speaker 7: So if this war ends and Iran's decimated militarily, but
Speaker 7: you still have the IRGC in control, Iran still controls
Speaker 7: the Strait of Horror Moves. And to your point, Anne Marie,
Speaker 7: I mean, it's quite remarkable Iran negotiating bilaterally with not
Speaker 7: only the Indians and the Turks and the Chinese, but
Speaker 7: the French and the Italians. You know, US allies about
Speaker 7: creating kind of like a TSA pre check line to
Speaker 7: get through the Strait of Horror Moves. I mean, talk
Speaker 7: about leverage. It's quite remarkable and not honestly anything I
Speaker 7: would have expected going into this conflict.
Speaker 1: You said, it's hard to see out unless US, the
Speaker 1: US makes real concessions, or the US ends boots in
Speaker 1: the ground. What would boots in the ground look like?
Speaker 7: Sure, I think this is a really important point, because
Speaker 7: I do really think there's a binary right here. There's
Speaker 7: sort of two ways to reopen the strait. One is
Speaker 7: you cut a deal with the Iranians in which you're
Speaker 7: making painful concessions, probably leaving almost certainly leaving the regime
Speaker 7: in power. But beyond that, maybe drawing down some US
Speaker 7: four in the region, maybe providing some security guarantees to
Speaker 7: Iran in the form of Russian or Chinese boots on
Speaker 7: the ground, a kind of trip wire in Iran the
Speaker 7: way that the United States has in NATO countries. I
Speaker 7: think if you were to put boots on the ground,
Speaker 7: what would you need to do If the goal is
Speaker 7: reopening the strait? You need two things. One, you need
Speaker 7: naval patrols in the straight over moves. The US Navy
Speaker 7: has not wanted to do this because we could lose
Speaker 7: these exquisite, exquisite warships just by short range missiles or drones.
Speaker 7: But two, we would also need to occupy quite a
Speaker 7: lot of the coastal part of Iran in the Persian
Speaker 7: Gulf to get enough of a buffer zone so that
Speaker 7: it's out of range of the drones. To the point
Speaker 7: we made before, they're going to have drones, so we
Speaker 7: need to actually build a very big buffer zone to prevent.
Speaker 6: Them from using them against ships.
Speaker 1: How much of a tipping point is this in terms
Speaker 1: of the Middle East power as a financial center, as
Speaker 1: a place that's been attracting a lot of money, as
Speaker 1: sort of a new growth area that everyone wants to
Speaker 1: get into, at least until now.
Speaker 7: You know, I think this is one of the more
Speaker 7: tragic elements of this war, because I think in the
Speaker 7: last few years golf countries have made really substantial strides
Speaker 7: to diversify away.
Speaker 6: From just being commodities producers.
Speaker 7: We've seen the UAE Saudi really invest in the future economy,
Speaker 7: becoming sort of hubs for data infrastructure AI et cetera. Well,
Speaker 7: guess what we've now seen for the first time in
Speaker 7: wartime a handful of data AWS data centers struck by Iran.
Speaker 7: And the real question I think that will come out
Speaker 7: of this is, even if there is some stability, will
Speaker 7: investors feel confident putting these really important AI data centers
Speaker 7: in the Middle East?
Speaker 6: I'm not so sure. And then for the.
Speaker 7: Perspective of the golf countries, they're going to have a
Speaker 7: big reconstruction bill. I mean, all these investors who come
Speaker 7: on your show, who are they going to for LPs.
Speaker 7: It's the sovereign wealth funds of these golf countries. They're
Speaker 7: not going to have as much money, I think, to
Speaker 7: splurge on Western private equity funds if they're needing to
Speaker 7: invest in rebuilding. The Rosla fund natural gas facility in cutter.
Speaker 2: Had a funal question forty seconds round, a speculation will
Speaker 2: be forgating in the future. Because this is a super
Speaker 2: fluid situation. How do you think this sends?
Speaker 6: Well, please do forgive me.
Speaker 7: I do think that it's likelier that Trump escalates than
Speaker 7: that he caves.
Speaker 6: So I've always.
Speaker 7: Been skeptical that Taco applies in this scenario. Taco in
Speaker 7: a trade war, Trump can utilaterally suspend tariffs, and no
Speaker 7: one's all the wiser.
Speaker 6: Everyone says, Okay, well, you know we won in this.
Speaker 7: If Trump backs down militarily, he has to walk away
Speaker 7: with his tail between his legs, and we never know
Speaker 7: if Iron actually will even allow ships to go through
Speaker 7: the straight erformance.
Speaker 3: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this take squeeze in
Speaker 2: gas prices, particularly in Europe. Brent the big move overnight,
Speaker 2: of course, rising close to one twenty as around remps
Speaker 2: up attacks on energy infrastructure in the Middle East. Samantha
Speaker 2: down of Goldman Sax rights in the following. The developments
Speaker 2: underscore upside risk to our price forecasts from longer Holmers
Speaker 2: disruptions and persist damage to energy production even after Homer's reopens.
Speaker 2: Sam joined US now for more, Sam, good morning, get
Speaker 2: to see you. Let's start where we kicked off this
Speaker 2: program this morning, Brent at one point fifteen, WTI at
Speaker 2: nineta and a spread starting to open up even more.
Speaker 2: What do you think it speaks to?
Speaker 9: So I think the market is pricing in this probability
Speaker 9: that maybe the US government will restrict exports, and if
Speaker 9: you're not exporting TI to the rest of the world,
Speaker 9: then you have a bigger oversupply within the US. So
Speaker 9: the WTI prices would stay on the low end and
Speaker 9: sort of disconnect from international prices.
Speaker 2: Can we explore that a little bit further? What would
Speaker 2: happen if they actually introduce that policy.
Speaker 9: So if you're blocking exports, I think the main risk,
Speaker 9: for example, especially product experts that everybody's talking about, the
Speaker 9: main risk is that the refineries in the Golf Coast
Speaker 9: will lose those high margins they are seeing in the
Speaker 9: market right now, and they may choose, Okay, I don't
Speaker 9: have the same incentive to produce that I did just
Speaker 9: a minute ago. I might reduce my production. So it's
Speaker 9: not obvious what the net impact will be in terms
Speaker 9: of product prices to the rest of the US. Also,
Speaker 9: because we don't know if other countries might retaliate at
Speaker 9: the moment. If you look at the northeast of the US,
Speaker 9: it has to net import products, same thing with the
Speaker 9: West coast that and Marie mentioned earlier. So it's not
Speaker 9: that easy to balance everything. Even on the crude side. Yes,
Speaker 9: the US produces a lot of light crude, but we
Speaker 9: import a lot of heavy crude. A lot of our
Speaker 9: refineries are set up to run a heavier type of crude.
Speaker 9: So what if other countries retaliate on exporting that to
Speaker 9: the US. So it's not an obvious answer. It can
Speaker 9: lower the WTI prices, it can potentially even lower product
Speaker 9: prices for the rest of the country, but we don't
Speaker 9: know what other ramifications might be. And when we saw
Speaker 9: that in the past, we saw the oil industry lobby
Speaker 9: against those types of manas. So I am curious to
Speaker 9: see where those conversations end today.
Speaker 1: Are you saying that you think the market's wrong, that
Speaker 1: you think that this gap has to close one way
Speaker 1: or another, potentially with WTI coming up to meet Brent Krude.
Speaker 9: No, I think with these conversations happening, the market is
Speaker 9: just trying to price a probability that they go ahead
Speaker 9: with it, and I think because of the sharp spike
Speaker 9: in prices that we've seen so far, it almost puts
Speaker 9: everything on the table and in the hopes that, Okay,
Speaker 9: we produce a lot of oil, we produce a lot
Speaker 9: of products, maybe we can pull this off. So I
Speaker 9: think it's correct to price in a probability that happens.
Speaker 9: I just don't know if the outcome will be.
Speaker 6: The desired one.
Speaker 1: Are you surprised that the market, the paper market isn't
Speaker 1: reacting more strongly to what a lot of people are
Speaker 1: saying is a real shift that we saw yesterday. We're
Speaker 1: suddenly gas facilities came under attack, Suddenly oil facilities came
Speaker 1: under attack, both suffering damages that could potentially take them
Speaker 1: offline for a longer period of time. Are you surprised
Speaker 1: that there is an even bigger reaction, not only in
Speaker 1: current futures, but also three months, six months, twelve months out.
Speaker 6: Yes, I am.
Speaker 9: What we've seen is that your Middle East price rows
Speaker 9: up the most, and that makes sense, that's where the
Speaker 9: shock is. And when you look at Brent, not quite
Speaker 9: as much. You still see a big differential, and even
Speaker 9: in the Middle East, when you look at their physical prices,
Speaker 9: they are even higher than their financial prices. So it's
Speaker 9: almost like the market is saying, maybe this can still
Speaker 9: be a short lived event. So you price the most
Speaker 9: your physical local market, then second you price your local
Speaker 9: financial market, and third you price the financial markets elsewhere.
Speaker 9: When this is not a given today that is going
Speaker 9: to be short lived. In fact, the escalation that we
Speaker 9: saw over the past few hours would I think suggest
Speaker 9: an increased risk that this goes on for a little
Speaker 9: bit longer. So yes, I am surprised, and I would
Speaker 9: expect the longer this goes, the more those financial prices
Speaker 9: will embed those risks in it and will go higher.
Speaker 6: I'm glad you bring up this point.
Speaker 8: The essential closure straight of her moose is short lived
Speaker 8: because that can reopen if there's a day hunt actually
Speaker 8: hitting energy infrastructure and long term damage as already long term.
Speaker 8: How long for this all to be rebuilt and the
Speaker 8: supply chains to get back to normal when actually the
Speaker 8: product itself is getting hit.
Speaker 9: That is a key point. I like to say that
Speaker 9: there are two variables first to watch in all this confusion.
Speaker 9: One is how much volume is out of the market,
Speaker 9: and that hasn't really changed because you're hitting infrastructure that
Speaker 9: wasn't really sending product or oil or gas through the
Speaker 9: strait to begin with. So you're not changing today what's
Speaker 9: coming out of the market. But the second variable to
Speaker 9: watch is how long this lasts. And the strait of
Speaker 9: her moose, to your point, is just one part of
Speaker 9: that answer. The second part is, well, if you're desjoying infrastructure,
Speaker 9: this may take longer to fix.
Speaker 6: This might not be a four.
Speaker 9: Week run up of operations in a refinery that you
Speaker 9: chose to shut down. This might take longer. It might
Speaker 9: take a few months if you have extensive damage in
Speaker 9: some of that infrastructure. So that second variable, the risk
Speaker 9: of how long the disruption lasts. You're essentially making that
Speaker 9: risk higher. The more infrastructure gets hit, the higher the
Speaker 9: risk that disruptions last longer.
Speaker 8: As we look ahead to Jdvan's vice president staying down
Speaker 8: with oil executives, the United States is not a monolith.
Speaker 8: If we have an export band control, what does this
Speaker 8: do for the West Coast that are so relyingt on
Speaker 8: Asian imports for their products.
Speaker 9: Yeah, and it's difficult to move, so you produce a
Speaker 9: lot of those products in the Golf Coast and it's
Speaker 9: difficult to move to the west coast in particular because
Speaker 9: you're not going to have enough pipeline capacity to do it,
Speaker 9: so you have to ship it around and it's not
Speaker 9: quite as easy as shipping to the east coast, so
Speaker 9: it'll be a bit clunky, not without friction, which means
Speaker 9: prices can still stay higher.
Speaker 6: For a little bit longer.
Speaker 2: We've seen big knaves and cred big amazing gas prices.
Speaker 2: Have you started to see anything happen in acts in
Speaker 2: self commodities off the back of.
Speaker 9: This, we're definitely getting a lot of questions on it,
Speaker 9: and we also see direct headlines saying Pakistan, Bangladesh, India
Speaker 9: supply to fertilize their plants in those locations already being
Speaker 9: curtailed because they don't have enough natural gas to do it.
Speaker 9: So we were talking to our chemicals and analysts in
Speaker 9: the US asking, well, the US still has supply, do
Speaker 9: we have any spare capacity to fill in that gap?
Speaker 9: But the answer is well, the US has cheaper nature
Speaker 9: guests than everybody else to begin with, so we're already
Speaker 9: cranking this up as high as possible, so you don't
Speaker 9: have spare capacity to crank this up and planting season
Speaker 9: is coming, so everybody's going to need a lot of
Speaker 9: this stuff coming soon.
Speaker 3: When do you think we'll be confronted by that reality.
Speaker 5: Oh?
Speaker 9: I don't think it takes long at all, because already
Speaker 9: supply is being affected, the production of fertilizers being affected,
Speaker 9: and planting season is coming.
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